THE DISTILLERY: QE3 tease

The downside of the Federal Reserve potentially unleashing QE3 is that it’ll put yet more pressure on the Australian dollar. That’s the reflection offered to us by The Australian’s David Uren. Also in this morning’s edition of The Distillery, focus shifts to the European Central Bank president Mario Draghi, while in Australia the state public sector contraction isn’t just happening to Queensland.

But firstly, The Australian’s economics editor David Uren explains how the Reserve Bank is in a terribly difficult position with its American cousin thinking about a third round of quantitative easing.

"The Australian dollar is at a tipping point. The collapse in iron ore prices – far greater than the RBA or authorities anywhere else were expecting – may bring capitulation for the currency. But US Federal Reserve chairman Ben Bernanke flagged on Friday that he stood ready to launch a further massive wave of liquidity support for the US economy, while central banks in Europe and Britain are both moving closer to fresh purchases of their governments' bonds. This raises the prospect of the Australian dollar coming under renewed and unwelcome upward pressure.”

Fairfax’s Malcolm Maiden makes the point that European Central Bank president Mario Draghi will have just as great an influence on the outlook of global markets with his plan to rescue the Euro zone.

The Australian’s Robin Bromby gives an account of the market reaction, which he found a bit subdued given the 0.7 per cent rise on the Dow Jones index.

"It was a little better in Europe, especially with good gains on the Milan and Madrid bourses as those beleaguered markets grasped at the latest straws. It was worse on the London Metal Exchange. Aluminium and lead managed anaemic gains, copper struggled to put on 0.6 per cent to close at $US7615 a tonne, but nickel and tin continued their losing streaks. Copper was the real worry. It had been falling away all week because traders feared Bernanke would baulk at QE3. When he did the opposite, still nothing for the red metal – even with threats of strikes at the Chilean copper export port of Antofagasta and Codelco reporting a 6.3 per cent fall in first-half production.”

Meanwhile, in a separate piece The Australian’s Uren looks beyond Queensland and finds conservative premiers slashing public service jobs in two more states.

"Newman has gone in harder and faster, but Barry O'Farrell in NSW (a budget target of 10,000 job cuts) and Ted Baillieu in Victoria (about 4000 jobs) are heading in the same direction. Tony Abbott showed this week that he likes Newman's style. ‘If you are going to deal with $100 billion of debt, the $10bn of deficit that the incoming Coalition government inherited, you've got to do the tough things and the tough things are the right things,’ the federal Opposition Leader said. The three conservative eastern premiers are all battling difficult finances and each has commissioned independent reviews to guide their response. The reviews have not made for good reading; indeed the Victorian government was so alarmed by the recommendations of the audit commission headed by its former Treasury secretary Mike Vertigan that it suppressed it.”

In other domestic affairs, Fairfax’s Ross Gittins hits the same theme that The Australian’s Adam Creighton did last week by arguing that Australia’s productivity gains in the 1990s might have come from advances in technology, rather than the microeconomic reforms that get most of the credit.

The Australian Financial Review’s Matthew Stevens continues his assault on the CFMEU, while Fairfax’s Ian Verrender pens his final column in a career at the publisher that has spanned 25 years.

In company news, Fairfax’s Michael West says Rio Tinto and BHP Billiton investors mightn’t be too happy with the billions they’ve blown on bad acquisitions in the last few years, but you can’t find fault with their lobbying.

The Australian Financial Review’s Chanticleer columnist Tony Boyd takes a look at the largely ignored digital broadcasting deal sealed at Basketball Australia by new chief executive Kristina Keneally.

And finally, The Australian’s John Durie lends a sympathetic ear to ANZ Bank chief executive Mike Smith in his appeals against further regulation of the financial sector.